Evaluate becky''s bad debt deduction

Assignment Help Financial Accounting

Reference no: EM134051

Question :

During 2011, Becky loans her brother Ken $5000, which he intends to use to create a small business. Ken has no other needs and assets cash to expand the business. The agreement provides that Ken will repay the debt if and when enough funds are generated from the business. No interest rate is agreed upon. The business is ineffective and Ken is forced to file for bankruptcy in 2012. Buy the end of 2012, it is evaluated that the creditors will receive only 30 percent of the amount owed. In 2013 the bankruptcy proceedings are closed, and the creditors receive 10 percent of the amount due on the debt. Evaluate Becky's bad debt deduction for 2012? For 2013? What forms are used to record the bad debt on her tax return?

I'm confused if the 30 percent and 10 percent to be paid back to the creditors goes to the bankruptcy filing or if the creditors is Becky? And does the amount matter for the percent of 30 percent or if it was greater? I'm confused about if Ken owes his sister or not. The loan doesn't seem very clear and they have a close relationship. I was also trying to evaluate if schedule D and 1040x are needed besides 1040. Could you please describe the reason of the answer so I can better understand the information?

Reference no: EM134051

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